A crucial thing to do when preparing for your retirement future is to calculate and comprehend what your yearly cost of living is and will more than likely be.
This is because you will need to recognize how much your income you may require to maintain the lifestyle you wish to have.
Unfortunately, many Americans are not fully aware as to what they spend their money on, aside from consistent payments to rent or a mortgage, insurance, and bills. However, this needs to change where you have a complete understanding as to what your expenses are during retirement so that you stay within your budget.
If you feel intimidated by this concept, this article will break down the need-to-know steps to get started within your retirement preparations up to the future shift to retirement. You may find that a huge weight off your shoulder disappears once you know where you stand with your finances, as many people do.
The first major thing is to see where your cash is ending up and then think about what it will be like in retirement. You can do this by going over what you have used your money on in the last year. (Bank statements are a great place to begin.)
Your home is generally the costliest item that your money goes towards as this includes your rent or mortgage, property taxes for those that own their home, insurance, public utility service bills, and maintenance expenses.
Think about what percentage do these expenses make up within your current income. Will you be keeping your current housing situation, or will you be changing it?
If you are looking for a change, relocating, or moving into a smaller home tends to be common moves during retirement. Also, be sure to plan this out way before you pull the trigger, so that you can do thorough research and know how it will affect you financially.
Also, if you decide to finance a home that is better for you, you may want to consider doing so while you have a higher income while working while looking for a loan.
The second expense to focus on is in regard to your health–healthcare in fact, which includes insurance, prescription medicines, specialized long-term care, and possibly out of pocket costs.
Fidelity Investments funds that a married couple that retires this year could pay is over $285K in relation to healthcare. This can affect those enrolling in Medicare after working in the private sector.
Retiring federal workers can keep their federal health plan (FEHB) through their retirement. The government pays around, and up to 72 -75 percent on premiums, which can lessen the impact of your out of pocket costs.
To plan for these expenses, you may want to start saving some money specifically towards medical costs in the future and also research options in regards to long-term care.
Another thing you need to calculate and anticipate is your taxes.
More often than not, your tax rate tends to be lower in retirement, which may save you money.
However, a majority of income in retirement is typically liable to income taxes at the federal and state level.
Another thing to look over for your retirement plan is investments and savings. Be sure to focus on these aspects with your retirement goals in mind so that you can adjust moves when necessary to reach them. Be sure to continue until you retire.
Consider how much your current transportation expenses are, and what they will be like in retirement. Be sure to consider car payments, insurance, maintenance, repairs, and the cost of fuel.
For those that have an older vehicle, it may be in your best interest to consider buying a newer second-hand vehicle as it may be cheaper in the long run to maintain. Even public transportation may be a viable option.
Now that those are out of the way, you can think about what you currently do and can do with the rest of your retirement income, such as paying for food, clothes, a variety of entertainment, vacations, and whatever else your heart desires to purchase.
The biggest thing is to know your limits. Before you end up a retiree, be sure to prioritize achieving the minimums of investments and savings first before you put a budget on this category. During retirement, you will have to adjust your budget to these expenses, depending on the stream of money coming in.
Another portion of your income may be going towards your family from extra-curricular activities, education, and possibly even supporting adult children in some way.
If you are charitably inclined, be sure to set aside money to help your community or the world. These donations can also provide a tax break.
With all of these items in mind, you can look these over and add any other expenses within these categories to completely flesh out your spending data.
After you come up with an estimated annual spending amount and what you believe to be achievable in retirement, you will want to list out all streams of retirement income you may have. Be sure to include the balances, the dates as to when these payments start, and so on.
Another list you should make is one that has all of your assets mentioned. Then note the ones that may be able to generate income.
These lists will help you figure out if you are on pace to meeting your goals or not.
After all of this, you should have an idea as to what you may need to adjust to your lifestyle, if needed, such as possibly working longer than expected, or getting another source of income, saving more, or a mix of many of these aspects.
Another thing you may wish to think about is setting up contributions to your savings and investment automatically to be used to money being allocated to necessary matters. Also, to stay within budget, it may be useful to implement bill pay and limit alerts to make sure all your bills get paid, and you do not spend more than what you have budgeted.
Also, budget alerts may help you avoid missing payments and overspending.
Be sure to realistically imagine what you would like your retirement to be like daily, and check into those ideas from time to time. Be sure to pay attention to what you are doing, where you live, and some things you want to focus your time on.
Though retirement planning and actions to implement it may be challenging and can take a lot of time, it will be worth it come retirement when you spend without worries about if you can afford it or not.